As a small business owner in South Africa, it’s important to be aware of your VAT obligations. This includes understanding how VAT works, VAT rates, and VAT registration. In this ultimate guide, we’ll provide you with all the information you need to make sure your VAT is in order. We’ll also discuss some common VAT mistakes made by small businesses, and provide tips on how to avoid them.
Stay informed and stay compliant – it could save you a lot of trouble down the line!
What is VAT?
Value-Added Tax (VAT) is an indirect tax that is levied on the consumption of goods and services in the economy. In South Africa, VAT is charged at a rate of 15%.
Who Must Register for VAT?
According to SARS: Businesses must register for VAT if the value of taxable supplies made or to be made, is in excess of R1 million in any consecutive 12 month period. This includes businesses that are sole proprietorships, partnerships, companies, close corporations, trusts, and even individuals who are self-employed.
There are a few exceptions to this rule – businesses that make only exempt supplies (such as financial services) or whose turnover is below the VAT threshold are not required to register for VAT.
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What is the VAT Threshold?
The VAT threshold is the turnover limit at which businesses are required to register for VAT. In South Africa, the VAT threshold is R1 million per year. This means that if your business’ turnover is below R1 million, you are not required to register for VAT.
How Does VAT Work?
When a business makes a taxable supply, they must charge VAT at the rate of 15%. The VAT charged is then paid over to SARS.
When a business purchases goods or services from another VAT-registered business, they can claim VAT credits for the VAT charged on these purchases. This VAT credit can be used to offset any VAT payable on taxable supplies made by the business.
The 3 Types of VAT
There are three types of VAT: standard-rated, zero-rated, and exempt.
- Standard-rated VAT is charged on most goods and services in South Africa. The VAT rate for standard-rated supplies is 15%.
- Zero-rated VAT is charged on certain essential items, such as food and medical supplies. The VAT rate for zero-rated supplies is 0%.
- Exempt VAT is not charged on certain supplies, such as financial services. This means that businesses that make only exempt supplies are not required to register for VAT.
What to know as a small business in South Africa
As a small business owner in South Africa, there are a few things you need to know about VAT. First and foremost, VAT is mandatory for all businesses that make taxable supplies. This includes a range of businesses, manufacturers, home businesses, and even those that are self-employed.
The only businesses that are exempt from vat registration are those that make only exempt supplies or whose turnover is below the vat threshold of R1 million per year.
If your business is required to register for vat, you will need to charge vat on all taxable supplies made by your business.
It’s important to note that vat is a complex tax, and there are many rules and regulations that businesses need to comply with. If you are unsure about anything, we recommend speaking to a tax professional or accountant for advice.
4 Common VAT Mistakes Made by Small Businesses
Failing to register
One of the most common vat mistakes made by small businesses is failing to register for vat when they are required to do so. If your business is required to register for vat and you fail to do so, you may be liable for penalties and interest charges.
Failing to charge vat
Another common vat mistake made by small businesses is failing to charge vat on taxable supplies. Remember, if your business is registered for vat, you must charge vat on all taxable supplies made by your business. If you don’t, you may be liable for penalties and interest charges.
Failing to pay VAT
Another mistake often made by small businesses is failing to pay over vat charged on sales to SARS. When you make a sale, you will need to add vat at the rate of 15% to the price of the goods or services sold. The vat charged on the sale will then be paid over to SARS. Failure to do so can lead to penalties and interest charges.
Failing to claim VAT
And finally, another common vat mistake made by small businesses is failing to claim vat credits for vat paid on purchases. Remember, if you purchase goods or services from another vat-registered business, you can claim vat credits for the vat charged on these purchases. You can use these vat credits to offset any vat payable on taxable supplies made by your business.
Frequently Asked Questions about VAT in South Africa
What services are excluded from VAT?
In South Africa, the following services are excluded from vat:
- Financial services
- Insurance services
- Transport services
- Educational services
- Healthcare services
Is vat payable on exports?
No, vat is not payable on exports. This means that businesses that export goods or services can claim vat refunds for vat paid on purchases used to produce these exports.
How often do you file vat returns?
In South Africa, the following five categories of tax periods are available:
- Every 2 months;
- Every month;
- Every 6 months;
- Every 12 months.
https://www.sars.gov.za/types-of-tax/value-added-tax/tax-periods-for-vat-vendors/
Can you register for vat online?
Yes, businesses can register for vat online through the SARS eFiling portal. Alternatively, businesses can complete and submit a VAT101 application form to their nearest SARS office.
Voluntary Registration?
A person may apply for voluntary registration if:
- Their taxable supplies have exceeded R50 000 in a preceding 12-month period;
- They carry on an enterprise that can be expected to result in taxable supplies in excess of R50 000 during a 12-month period due to its nature;
- They buy a business as a going concern if the previous owner made taxable supplies in excess of R50 000 in a 12-month period; and
- They are a welfare organisation, share block company, foreign donor-funded project or municipality, even if the R50 000 requirement has not been met.
Group and branch registration?
Different companies in the same group cannot be registered as a group under one VAT registration number. Separate enterprises carried on by a vendor or branches, or divisions of an enterprise carried on by a vendor, may be registered separately.
VAT Deregistration
A vendor whose taxable supplies do not exceed the R1 million limit has the option to deregister. A vendor must apply for deregistration if his taxable supplies did not exceed the R50 000 voluntary registration limit, or when the vendor ceases to carry on an enterprise.
SARS may deregister a vendor who voluntarily registered if they no longer have a fixed place of business, a bank account or proper accounting records. Upon deregistration the vendor must pay output tax on all assets of his enterprise held by him immediately prior to his deregistration.
Hire an Agency for your Business
VAT can be quite complex – with so many rules and regulations to comply with, it’s easy to make mistakes that can lead to penalties and interest charges. This is why it’s recommended that small businesses in South Africa hire an agency to help them with their vat compliance, allowing them time to focus on growing their business.
An experienced vat consultant can help you to ensure that your business is vat compliant, and can also assist you with vat returns, vat refunds, and more.
Small Business & Individual Tax Planning:
Our team of vat experts can help you to understand vat and ensure that your business is vat compliant. We can also assist you with vat returns, vat refunds, and more.
SARS Submissions:
We can help you to complete and submit all the necessary vat return forms to SARS.
SARS Registrations:
We can assist you with registering your business for vat, and we can also help you to apply for vat refunds.
SARS Queries:
If you have any questions or queries about vat, our team can provide answers and guidance.
Tax Due Diligence:
We can help you to understand your tax obligations, and we can also assist with vat audits and vat investigations.
Get in touch today to find out more about our vat services, and how we can help your business.
